Thursday, August 11, 2011

Does your company use Credit Reports when making Hiring Decisions?

FROM PRIME PAY: PAYROLL & BUSINESS EXPERT BLOG..... A Dodd-Frank Act amendment to the Fair Credit Reporting Act (FCRA) went into effect July 21, 2011. Bruce Richards, an attorney with Taylor English Duma LLP in Atlanta and formerly general counsel with the credit reporting agency Equifax, said that one of the amendments to the FCRA deals with the use of credit scores by anyone who takes adverse action based on the scores.

If an employer uses a consumer report that includes a credit score in order to determine eligibility for employment, the employer will be required to disclose:

* That a credit score was used

* Information on the credit score, including the credit score itself

* The identity of the agency that provided the score so that an applicant may contact the agency to correct any error

When Might Employers Use Credit Scores in Their Hiring Process?

Most employers don’t use third-party scores. They instead order background checks and sometimes credit reports, Richards noted. But he said that in highly sensitive situations a number of companies seek credit scores from credit reporting agencies when financial assets are at risk. For example, an employer that is seeking to hire someone for a position that involves access to cash or other liquid assets might want to be particularly careful in hiring to make sure that they do not select someone who is in need of cash and might be at a greater risk of stealing. The employer in this circumstance might decide to use credit scores as part of the hiring process.

Steps Employers Must Take Prior to Taking Adverse Action

Under the FCRA, prior to an employer taking adverse action against an applicant or employee based wholly or partly on the information contained in a consumer report, the employer must first provide the applicant or employee with a copy of the report, along with a written description of his or her rights under the statute (including the right to request disclosure of the nature, sources and recipients of any credit report). According to the FCRA, “adverse action” includes the “denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee.”

Whenever any adverse action is taken against an applicant or employee, either partly or wholly because of information contained in a consumer report, the employer must provide him or her with:

* Oral, written or electronic notice of the adverse action;

* The name, address and phone number of the consumer reporting agency that furnished the report;

* A statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to explain the specific reasons behind the decision;

* In addition, the applicant or employee must be notified of his or her right to dispute the accuracy of the report.

Often, small employers aren’t aware of their obligations under the FCRA, such as getting an applicant’s or employee’s consent to order a credit report, Richards said. Some employers fail to provide the appropriate “pre-adverse-action” notices to applicants, which are required in order to enable the applicant or employee to address or clear up any potentially erroneous information.

Richards remarked that it is “clear that employers that consider using credit scores need to be aware of their obligations.”

(The majority of the content for this blog article was written by Allen Smith, J.D., SHRM’s manager of workplace law content.)

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